US prices rise slightly in August as central bank meets

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US prices rose 0.1% in August, according to the Labor Department, as falling energy prices kept rising rents and medical costs in check.

Central bankers at the Federal Reserve have been closely eyeing the figure.

They worry that continued stimulus efforts could eventually push prices up, and have signalled their intent to begin pulling back as soon as they conclude their meeting this week.

Year over year, prices have risen 1.5%, slower than expected.

Stripping out volatile food and energy prices, the core index increased by 0.1% as well.

Below target

The two-day Federal Reserve open market committee meeting gets underway on Tuesday.

It is widely expected that the bank will announce a slight slowdown of its $85bn bond buying effort.

The scheme was initially undertaken as a way to lower interest rates and therefore prop up the US economy, but chairman Ben Bernanke has indicated that he thinks the extraordinary efforts of the Fed might no longer be necessary to keep the economy growing.

However, slower-than-expected inflation could serve to give advocates against the so-called "taper" ammunition.

Under Mr Bernanke, the Fed has decided to become more explicit about its targets for inflation, stating that it would like prices to rise by 2% each year.

At 1.5% annually, inflation is therefore below the Fed's explicit expectations.

This could perhaps indicate that the US economy is still not back to full steam and that if the economy were to fall back into a recession, the prospect of deflation could loom.

Falling prices are very difficult for central bankers to combat with traditional monetary policy tools.

A raft of positive economic data over the summer, including steady jobs and growth figures, has served to temper some concerns about low inflation, which has surprised many economists.

An announcement regarding the Fed's outlook for the economy is expected on Wednesday.

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